James Monroe blames the panic of 1819 on the decline in manufacturing and labor, rather than the poor management of the Second Bank of the United State.
After the war of 1812, America's exports came under great pressure from open trading in Europe due to the sudden emergence of peace after the Napoleonic wars. European demand for American goods such as cotton, tobacco and flour greatly increased and to bolster the American economy, President James Madison had finally given up on his opposition to a national bank. And on January 7, 1817 the Second Bank officially began it's operations in Philadelphia. Because of the great demand for credit, the federal government allowed the Second Bank of the United States (forerunner to today's Federal Reserve System) to offer easy and sometimes fraudulent loans and print paper money. The bank which was supposed to stabilize the economy was now doling out huge loans that fueled over speculation and inflation. Much of this speculation was over public lands recently opened up to the public in the Northwest Territory. Gross poor management of the bank led a congressional committee to propose that the nearly insolvent bank be terminated. Due to personal interests (40 members owned stock in the bank), the proposal failed.
Meanwhile, economic contraction along with increased crop yields reduced the demand for American farm products and increased the need for American banks to call in their loans. By early 1819, credit began to fail and the specie reserves at many banks dried up. Land sales plummeted as unemployment rose leaving many without the basic necessities to live by. The country was in a panic and heading into a depression. In his 1819 State of the Union address, President Monroe described it as "pecuniary embarrassments" or financial disruptions which have so deeply affected the commercial interests of the nation". Rather than blame the management of the financial institutions, Monroe placed the blame squarely on the declining demand for American manufacturing goods and it's effect on the price of labor. According to Monroe, because revenue fell so quickly, the banks were forced to make hasty decisions, and were unable to prepare for the demand. The "vitiated character" meaning loss of value forced the banks to to dip into their own capital to offset the "the reduction in the prices of the raw materials and of labor". In the end, many banks "refused" or were unable to provide the pecuniary aid that was needed, leading to the panic of 1819, or what Monroe described as a "loss of individual confidence from the frequent failures which have recently occurred in some of our principal commercial cities."
"The great reduction in the price of the principal articles of domestic growth which has occurred during the present year, and the consequent fall in the price of labor, apparently so favorable to the success of domestic manufactures, have not shielded them against other causes adverse to their prosperity. The pecuniary embarrassments which have so deeply affected the commercial interests of the nation have been no less adverse to our manufacturing establishments in several sections of the Union.http://www.presidency.ucsb.edu/ws/index.php?pid=29461
The great reduction of the currency which the banks have been constrained to make in order to continue specie payments, and the vitiated character of it where such reductions have not been attempted, instead of placing within the reach of these establishments the pecuniary aid necessary to avail themselves of the advantages resulting from the reduction in the prices of the raw materials and of labor, have compelled the banks to withdraw from them a portion of the capital heretofore advanced to them. That aid which has been refused by the banks has not been obtained from other sources, owing to the loss of individual confidence from the frequent failures which have recently occurred in some of our principal commercial cities."
https://waltercoffey.wordpress.com/2012/08/19/the-panic-of-1819/
https://www.theglobalist.com/panic-of-1819-the-first-major-u-s-depression/
https://upload.wikimedia.org/wikipedia/commons/f/f4/Benjamin_Latrobe_-_Second_Bank_of_the_USA.jpg
No comments:
Post a Comment